The dollar saw broad-based gains against the majors last week. NOK, SEK, and AUD outperformed while JPY, CHF, and NZD underperformed. Sluggish growth across DM is taking precedence for policymakers and so most DM central banks remain in easing mode. Elsewhere, the data continue to show that U.S. economic exceptionalism is continuing and that is likely to get the Fed to signal a pause after the expected cut this week. This global backdrop should lead to further gains for the dollar.

AMERICAS

The two-day FOMC meeting ends Wednesday with an expected 25 bp cut. The swaps market has fully priced in a cut, but 10 of the 97 analysts polled by Bloomberg look for steady rates. We expect the Fed to cut whilst preparing the market for a pause as the U.S. economy is robust, progress on inflation may be stalling above 2%, and financial conditions are very loose. We see significant risk that at least one FOMC member (Fed Governor Bowman) dissents in favor of keeping rates on hold.

Chair Powell’s press conference will be important. In his last public speech December 4 before the media blackout, Powell maintained a cautious tone. He said that “We can afford to be a little more cautious as we try to find neutral.” With regards to the September cut, Powell stressed that "We wanted to send a strong signal that we were going to support the labor market if it continued to weaken." However, he added that "The economy is strong, and it's stronger than we thought it was going to be in September." He doesn’t sound like he’s in a hurry to cut rates.

Updated macro forecasts and Dot Plots will be released. Given the recent data, we look for modest upward revisions in the growth and inflation forecasts that support a hawkish shift in the Dot Plots. The 2025 median dot was 3.375% in the September Dots, signifying four cuts. According to our calculations, it would take five of the six policy makers to shift from four cuts to three in order to move the 2025 median to 3.625%. The 2026 and 2027 Dots were both 2.875% in the September Dots. According to our calculations, it would only take one policymaker to shift from 2.875% to 3.0% in order to move the median in either year to 3.125%. Lastly, the long-term median dot was 2.875% in the September Dots. According to our calculations, it would only take one policymaker to shift from 2.875% to 3.0% in order to move the long-term median to 3.0%.

Longer-term yields have risen sharply ahead of the FOMC decision. The 10-year yield traded last week at 4.40%, the highest since November 22 and on track to test the November 15 high near 4.50%. Similarly, the 30-year yield traded last week at 4.62%, also the highest since November 22 and on track to test the November 18 high near 4.68%. Yields at the short end did not rise as much and so the 3-month to 10-year curve turned positive for the first time since November 2022.

Data highlight will be November retail sales Tuesday. Headline is expected at 0.4% m/m vs. 0.4% in October, ex-autos are expected at 0.4% m/m vs. 0.1% in October, and the so-called control group used for GDP calculations is expected at 0.4% m/m vs. -0.1% in October. Overall, consumer spending is supported by positive real wage growth, healthy labor market and strong household balance sheet. November business inventories and IP will also be reported Tuesday.

S&P Global preliminary December PMIs Monday will also be important. Headline manufacturing is expected to fall two ticks to 49.5, services is expected to fall three ticks to 55.8, and the composite is expected to rise two ticks to 55.1. We expect the recent U.S. outperformance in the PMIs to continue.

Weekly jobless claims Thursday will be of interest. That’s because initial claims are for the BLS survey week containing the 12th of the month and are expected at 229k vs. 242k previously. There is no Bloomberg consensus yet for December NFP but its whisper number stands at 201k vs. 227k in November. Continuing claims are reported with a one-week lag and stood at 1.886 mln previously.

November PCE data Friday will be closely watched. Headline is expected at 2.5% y/y vs. 2.3% in October, while core PCE is expected at 2.9% y/y vs. 2.8% in October. If so, headline would be the highest since July and move further above the 2% target. Of note, the Cleveland Fed’s Nowcast model sees headline at 2.6% and core at 3.0%. For December, that model sees headline at 2.8% and core at 3.0%.

Personal income and spending will be reported at the same time. Income is expected at 0.4% m/m vs. 0.6% in October, while spending is expected at 0.5% m/m vs. 0.4% in October. Real spending is expected at 0.3% m/m vs. 0.1% in October.

December regional Fed surveys start rolling out. Empire manufacturing survey kicks things off Monday and is expected at 10.0 vs. 31.2 in November. New York Fed services survey will be reported Tuesday. Philly (2.9 expected) and Kansas City Fed manufacturing surveys will be reported Thursday. Kansas City services survey will be reported Friday.

We get a final revision to Q3 GDP Thursday. Overall growth is expected to remain steady at 2.8% SAAR, while personal consumption is expected to pick up two ticks to 3.7% SAAR. However, this is old news as the markets look ahead to Q4 and Q1. The Atlanta Fed GDPNow model has Q4 growth at 3.3% SAAR and will be updated Tuesday after the data. Elsewhere, the New York Fed's Nowcast model is tracking Q4 growth at 1.9% SAAR and Q1 growth at 2.3% SAAR and will be updated Friday.

Key housing data will be reported. December NAHB housing market index will be reported Tuesday and is expected to rise a point to 47. November building permits and housing starts will be reported Wednesday. Existing home sales will be reported Thursday and are expected at 3.0% m/m vs. 3.4% in October. As a background, residential investment subtracted -0.2 ppt and -0.1 ppt to Q3 and Q2 GDP growth, respectively. Residential investment is forecast to remain a drag to growth in Q4. This could lead the construction sector to accelerate job cuts and worsen the slowdown in the US labor market. It’s worth noting that total construction jobs account for 5.2% of total non-farm employment while residential construction jobs make up 1.2%.

Canada highlight will be November CPI data Tuesday. Headline is expected to remain steady at 2.0% y/y, core median is expected to fall a tick to 2.4% y/y, and core trim is expected to remain steady at 2.6% y/y. If so, headline would remain at or below the 2% target for the fourth straight month. The Bank of Canada projects headline and core CPI inflation to average 2.1% and 2.3% over Q4, respectively. At last week’s meeting, the bank delivered a follow-up 50 bp cut to 3.25% but toned down its forward by noting that “Going forward, we will be evaluating the need for further reductions in the policy rate one decision at a time.” Previously, the BOC warned “we expect to reduce the policy rate further.” Governor Macklem effectively ruled out additional jumbo cuts, pointing out that officials will consider further rate cuts but likely at a slower pace. In our view, the BOC has room to keep ease, which is an ongoing drag for CAD. Inflation is close to 2%, inflationary pressures are no longer broad-based, and the growth outlook is soggy. This means the BOC can afford to move the policy rate within its neutral range estimate between 2.25-3.25%.

Canada also reports October retail sales Friday. Statistics Canada’s advanced retail indicator suggests sales increased 0.7% m/m after rising 0.4% in September.

EUROPE/MIDDLE EAST/AFRICA

German Chancellor Scholz faces a vote of no confidence Monday. If passed, it will trigger a snap election in February 23. Polls currently show the opposition conservatives under Friedrich Merz lead by a wide margin with support around 31%, followed by the far-right Alternative for Germany at about 18%, and Scholz’s SPD at 17%. Encouragingly, Merz is open to relax the so-called debt brake (which restricts annual structural deficits to 0.35% of GDP in any fiscal year), “if extra borrowing were to boost investment.” Nonetheless, fiscal support to the Germany economy will require time to take shape as the formation of a new coalition government could take weeks or months. That means the ECB will have to do the heavy lifting.

Markets are still digesting the ECB decision. The swaps market is now pricing in 150 bp of easing over the next 12 months that would see the policy rate bottom near 1.50% vs. 1.75% prior to last week’s 25 bp cut. Simkus, Lagarde, Guindos, Wunsch, Escriva, and Schnabel speak Monday. Kazimir and Rehn speak Tuesday. Muller, Lane, and Nagel speak Wednesday.

Eurozone data highlight will be preliminary December PMIs Monday. Headline manufacturing is expected to rise a tick to 45.3, services is expected to remain steady at 49.5, and the composite is expected to fall a tick to 48.2. Looking at the country breakdown, the German composite is expected to rise three ticks to 47.5 while the French composite is expected to rise a tick to 46.0. Italy and Spain will be reported with the final PMIs in early January.

Q3 labor costs will be reported Monday. The ECB projects labor cost growth of 4.5% y/y in Q3 vs. 4.7% in Q2. However, the ECB then expects labor costs to fall sharply to 2.0% by 2027 reflecting rising productivity and falling wage growth.

Germany reports some key surveys this week. IFO and ZEW surveys for December will be reported Tuesday. IFO business climate is expected to fall two ticks to 85.5, with current assessment seen falling three ticks and expectations seen rising three ticks. ZEW current situation is seen at -93.0 vs. -91.4 in November while expectations is seen at 6.6 vs. 7.4 in November. January GfK consumer confidence will be reported Thursday and is expected at -22.8 vs. -23.3 in December.

Bank of England meeting ends Thursday with a widely expected hold. The MPC will likely vote by a majority of 8–1 to stand pat with one member (Swati Dhingra) in favor of a cut. We also expect the BOE to reiterate that “monetary policy will need to continue to remain restrictive for sufficiently long.” Stubbornly high services price inflation is a key factor behind the BOE’s cautious easing guidance. Markets are pricing in 75 bp of BOE rate cuts over the next 12 months, which is about right in our view. The next Monetary Policy Report with updated macro forecasts will come at the February 6 meeting.

U.K. data highlight will be November CPI Wednesday. Headline is expected at 2.6% y/y vs. 2.3% in October, core is expected at 3.6% y/y vs. 3.3% in October, and CPIH is expected at 3.5% y/y vs. 3.2% in October. If so, headline would be the highest since March and move further above the 2% target. Of note, services inflation is expected to pick up a tick to 5.1% y/y.

Preliminary December PMIs Monday will also be important. Manufacturing is expected to rise half a point to 48.5, services is expected to risk two ticks to 51.0, and the composite is expected to rise a tick to 50.6. If so, the composite would continue to remain above 50, albeit just barely. This suggests Q4 GDP growth is likely to remain very sluggish after eking out a 0.1% q/q gain in Q3.

Labor market data Tuesday will be of interest. Average weekly earnings for the three months ended in October are expected to pick up to 4.7% y/y vs. 4.3% previously, while earnings ex-bonus are expected to pick up to 5.0% y/y vs. 4.8% previously. The unemployment rate is expected to remain steady at 4.3%. The Bank of England projects average weekly earnings private sector regular pay of 5.1% y/y and an unemployment rate of 4.2% over Q4.

November retail sales data will be reported Friday. Headline sales are expected at 0.5% m/m vs. -0.7% in October, while sales ex-auto fuel are expected at 0.5% m/m vs. -0.9% in October. In y/y terms, both are expected to slow sharply from October to 1.0% and 0.8%, respectively. The upcoming retail sales data may not capture the Black Friday deals, which will likely be reflected in the December figures. The bigger picture shows U.K. consumption supported by continued growth in household real incomes, as well as a waning drag from higher interest rates.

The two-day Riksbank meeting ends Thursday with an expected 25 bp cut to 2.5%. However, the market is split as the analyst community is nearly unanimous while the swaps market sees 50-50 odds. At the last meeting November 7, the Riksbank cut rates 25 bp and signaled that “the policy rate may be cut again at the next monetary policy meeting in December and during the first half of 2025, in line with what was communicated in September.” The bank will publish new sets of macroeconomic forecasts which will offer fresh policy guidance. The market is pricing in nearly 100 bp of easing over the next 12 months that would see the policy rate bottom near 1.75%.

Norges Bank meets Thursday and is expected to keep rates on hold at 4.5%. At its November 6 meeting the bank kept rates steady and emphasized that “the policy rate would most likely be kept at 4.5 percent to the end of 2024.” The first 25 bp rate cut is priced in for March, which is in line with the Norges Bank’s policy guidance. The Norges Bank will publish updated macroeconomic forecasts, which could offer fresh policy guidance.

ASIA

The two-day Bank of Japan meeting ends Thursday with a widely expected hold. The market sees only 15% odds of a hike after several reports emerged that a pause was being considered. The risk is the BOJ paves the way for a January rate hike. The odds of a hike rise to 70% at the January 23-24 meeting, when updated macro forecasts will be released.

Japan data highlight will be November national CPI data Friday. Headline is expected at 2.9% y/y vs. 2.3% in October, core (ex-fresh food) is expected at 2.6% y/y vs. 2.3% in October, and core ex-energy is expected at 2.4% y/y vs. 2.3% in October. If so, core would be the highest since August and move further above the 2% target.

Preliminary December PMIs Monday will also be important. Final November services came in at 50.5 vs. 50.2 preliminary, which helped drag the composite up to 50.1 vs. 49.8 preliminary. That meant that the composite did not spend two straight months below 50, albeit just barely. This suggests Q4 GDP growth is likely to remain very sluggish after eking out a 0.2% q/q gain in Q3.

November trade data will be reported Wednesday. Exports are expected at 2.5% y/y vs. 3.1% in October, while imports are expected at 0.8% y/y vs. 0.4% in October.

Australia highlight will be preliminary December PMIs Monday. Final November services came in at 50.5 vs. 49.6 preliminary, which helped drag the composite up to 50.2 vs. 49.4 preliminary. That meant that the composite stayed above 50 for two straight months, albeit just barely. That suggests Q3’s lackluster growth is carrying over into Q4.

New Zealand highlight will be Q3 GDP data Thursday. The economy is expected to contract -0.2% q/q, same as in Q2, while the y/y rate is expected at -0.4% vs. -0.5% in Q2. Sluggish New Zealand economic activity will validate the RBNZ’s dovish guidance. At the November meeting, the RBNZ slashed the Official Cash rate 50 bp to 4.25% and noted it “expects to be able to lower the OCR further early next year.” RBNZ Governor Orr pointed out that the bank’s updated projections are consistent with another 50 bp cut at its next decision February 19. After that the pace of easing should slow as the economy recovers.

Q3 current account data Wednesday will also be important. The deficit is expected to narrow a tick to -6.6% of GDP.